Nos. 36 & 37, March 2004
Nos. 36 & 37
The Real State of India's
Unemployment is not merely a human problem, a difficulty faced by the unemployed. It is an expression of the inability of the existing social system to draw on all the resources available to it to increase production. Indeed, unlike the other two factors of production, land and capital, which are passive, labour is able to create capital. If society is to maximise production, it cannot afford to waste any of the factors of production: these factors of production, including labour, must be put to socially efficient and complete use.
Until the Great Depression of 1929, capitalist economists were not much concerned with the question of unemployment. Their theoretical frame assumed that the only reason for there being excess supply of any commodity was that its price was not being allowed to sink to its market-clearing level, the price at which all of that commodity would be bought up. Thus unemployment was said to be the result of wages not sinking low enough; this in turn was because of trade unions. Were wages allowed to sink low enough, capitalists would find it profitable to hire more workers, and would spontaneously do so till full employment was reached.1
However, the Great Depression that began in 1929 dealt a blow to this school of thought. Production was cut back, investment dried up, workers were retrenched, and wages sank; yet capitalists did not start hiring even at the reduced wages; instead production was cut even further.
Unemployment was the central question addressed by J.M. Keynes, although he addressed it from a limited frame of a capitalist society. Keynes pointed out that capitalists would not hire workers as long as demand were inadequate. Indeed not only labour, but even capital and land may remain idle for lack of demand in the economy. Under such conditions, he argued, it was necessary for the State to stimulate demand by carrying out investment. While Keynes was very much an establishment economist, whose concern was the survival and stabilisation of the capitalist system, his contribution was to dispel the illusion that the economic system was stable, or that it would spontaneously bring about full employment.
In the last three decades, however, the pre-Keynes theoretical frame has regained ascendancy among academicians in the pay of the ruling establishment. It is being promoted as gospel truth worldwide by the rulers. It is being implemented not only in industrialised countries, but even in countries like India, where vast unemployment/under-employment reigns. Under these conditions, in the absence of social protection and workers' organisation, the "market-clearing" price of labour power can sink well below the level needed for subsistence.
It has been almost 13 years since the initiation of the New Economic Policy, one aspect of which has been an attack on organised labour. In practice there is now hardly any check on either the use of contract labour for jobs of a permanent nature, or on retrenchment/closure of units. Permanent workers are being replaced rapidly by contract workers working for a fraction of the wage. This is reflected, for example, in the decreasing share of wages in costs of production, and the increasing share of jobs contracted out in total costs. A December 2003 study by the Centre for Monitoring Indian Economy (CMIE) points out that, while the share of wages in the total costs of Indian companies fell from 6.1 per cent in 1991-92 to 4.4 per cent in 2002-03, the share of purchase of finished goods (because of jobs contracted out to other units, in many cases) rose from 13 per cent to 20 per cent during the same period.
In discussing official employment data in India, we need to keep in mind that a person is considered employed if he/she is engaged in "gainful activities" during the period under study. Other than doing one's own housework or committing crimes, more or less anything is considered a gainful activity in such statistics. This definition bears no relation to whether a person is able to earn (gain) enough from the activity to meet his/her minimum needs. A peanut vendor may not be able to sell enough to eat two meals a day; a household-based worker might roll bidis the whole day for ten or fifteen rupees; a marginal farmer might be forced to take loans not only for farming but even for consumption. Nevertheless the mere fact of being engaged in "gainful activities" during the greater part of the reference period is sufficient to record them as "employed".
This leads to strange results. Commonsensically, a job should provide a 'living', and therefore an employed person should not be 'poor'; if it were not to provide a living, it could hardly be called employment. Hence if 26 per cent of the population were poor in 1999-2000 (taking the ridiculously low estimate of poverty provided by the Planning Commission), one would expect a similar percentage of the labour force to be unemployed. However, the Planning Commission considers only 7.3 per cent of the labour force in that year to have been unemployed. Evidently, going by the Government's criteria, one can be employed and yet officially poor, that is, unable to meet minimum needs. This gives us an idea of the quality of what is being called 'employment' in official statistics.
In a country like
India, people take whatever work they can get, regardless of how low
the wages are, for there is no present alternative: there
is no unemployment insurance for those who cannot get jobs. Only
eight per cent of those considered 'employed' have jobs in the organised
sector; the rest are in the unorganised sector, where the minimum
does not operate. Thus employment statistics for India cannot be
interpreted in the same way as those for industrialised countries.
Sharp slowing down of employment growth
However, the organised sector has always had a small share in the total employment in India. For the broader official data on employment and unemployment, we must turn to the National Sample Survey rounds of 1983, 1993-94 and 1999-2000.3 According to these figures, the rate of unemployment was 8.3 per cent in 1983; it fell to six per cent in 1993-94; and then rose again to 7.3 per cent in 1999-2000.
This would suggest that unemployment worsened in the second half of the nineties, during the period of the New Economic Policy. There was a sharp slowing down of the rate of growth of employment— from 2.7 per cent per year during 1983 to 1993-94 to 1.1 per cent per year during 1993-94 to 1999-2000. The number of new jobs fell from 7.6 million a year in the earlier period to 3.5 million a year in the later period.
Rapid growth of "discouraged workers" disguises
extent of unemployment
force" -- ie the employed and others actively looking for work
To state the obvious, given any particular number of employed persons, if you could somehow peg down the number of people looking for work, you would derive a smaller number of officially unemployed, and the rate of unemployment would fall. If, for example, your labour force were 100, and your workforce were 80, 20 persons would be unemployed, and the rate of unemployment would be 20 per cent. But if, without increasing the number of jobs, you could somehow reduce the official figure of the labour force to 90, only 10 persons would be considered unemployed, and the unemployment rate would be only 11.1 per cent (10/90).
This is more or less what has happened in the 1990s. One would expect the growth of the labour force to be not far from the growth of the population of working age (ie, between 15 and 59 years of age). Indeed, between 1983 and 1993-94, with the working age population growing at over three per cent a year, the labour force grew at 2.43 per cent a year. The two rates diverged, but were not all that far apart. However, between 1993-94 and 1999-2000, this changed dramatically. While the working age population grew at around 2.8 per cent a year, the labour force grew at the rate of only 1.31 per cent. The divergence between the two rates was now very sharp. That is to say, the Government would have us believe that the number of new entrants in the job market fell from 7.5 million a year in the earlier period to 4.6 million a year in the later period!
What could account for this sudden drop in the growth rate of those looking for work, even as the working age population continued to grow rapidly? Higher enrolment of children in school would no doubt reduce the size of the labour force, but it would account for only a small fraction of the missing workers. The main reason for the drop is that many workers gave up looking for work because no jobs were available for a long time. They joined the pool of what are called "discouraged workers".
Let us calculate what the rate of unemployment would have been with the labour force continuing to grow during the second period at the same rate as during the first. In that case, instead of reaching 363 million by 1999-2000, the labour force would have grown to 388 million. The number of unemployed would then be not 26.6 million, as stated by the Planning Commission, but 51 million; and the rate of unemployment would be not 7.3 per cent, but 13.2 per cent. That is, almost double.
Sharp drop in employment elasticity portends rapid growth of unemployment
In the first period (1983 to 1993-94), employment elasticity was 0.52: that is, GDP grew at an annual rate of 5.2 per cent, and employment grew at half that rate. In the second period (1993-94 to 1999-2000), however, employment elasticity fell sharply to just 0.16: that is, though GDP grew faster, at 6.7 per cent a year, employment growth fell steeply, growing at less than one-sixth the pace of GDP.
Now, the Planning Commission claims that the labour force is growing at the rate of only 1.31 per cent per year. Without disputing this figure for the moment, the startling fact remains that to generate enough jobs to absorb this small addition to the labour force, GDP growth of 8.2 per cent per year is required. This is why the Government keeps talking of achieving eight per cent growth in the coming years.
Is such a rate of growth likely over a number of years? No. The GDP growth rate has not reached such levels since the single year of 1988-89, when too it was on the very low base of the previous year (a year of acute drought). For just two years in the 1990s — viz, 1994-95 and 1995-96 — did the GDP growth even approach the required figure to absorb the new entrants. After that it promptly sank into stagnation (see Table 4). The average annual rate of growth from 1992-93 to 2002-03 was 5.9 per cent; for the last six years of that period, it was 5.3 per cent.
No doubt some optimistic projections for GDP growth in the current year, 2003-04, are eight per cent, but even this would just barely absorb the new entrants, and do nothing to clear the backlog.4 So, even if we go entirely by the Government's own calculations, by the end of 2003-04 there would be a total of 34 million unemployed, and the rate of unemployment would have risen from 7.3 per cent to 8.8 per cent. To this backlog every year would be added the additional unemployed.5
The picture gets much worse if we assume, quite reasonably, that the labour force continued to grow at the earlier rate of 2.43 per cent even after 1993-94. In that case,6 by the end of 2003-04 the labour force would have grown to 427 million, total employment would have crawled up to 349 million, and the figure of unemployed would have reached 78 million. The unemployment rate would be seen to have risen from 13.2 per cent to 18.3 per cent in the space of just four years.
Moreover, merely to absorb the fresh entrants into the labour market each year, GDP growth would have to gallop at the impossible pace of 15.2 per cent a year.
All this can be seen purely on the basis of the official figures and method, with the single reasonable modification of assuming that the labour force continued to grow at its earlier rate.
Nearly half the working age population
lack employment of any sort
First, the official definition of "labour force" leaves out a large number of people who would work if they had some prospect of a job. The total population of working age is far larger than the officially defined labour force. In the year 2000, when employment was 337 million, and the official figure of the labour force was 363 million, the working age population was 578 million. By March 2004, when employment would be 349 million, the working age population would have risen to 662 million.7 In other words, 313 million, or almost half the population in the working age group, are unable to engage in any 'gainful activity' because of the existing economic order and the policies it has adopted.8
It may be argued that this large number of working-age persons without jobs is because household labour, which is not counted as employment, is performed by women, who are therefore not free to be "employed". But in fact those women who are counted among the employed are not free of household labour, either, whatever be the field of their labour -- agriculture, industry, or services. Moreover, many forms of women's wage 'employment' are home-based — rolling bidis, making papads/pickles/spices, making fire crackers/matches/incense sticks, sewing buttons, making lace, checking garments, making garlands, fitting together simple toys, or making small cardboard boxes for pharmaceuticals and consumer products. So their household labour, no matter how burdensome, need not pose an obstacle to their engaging in 'gainful activity'. The real obstacle to women's employment is that no such opportunity is available.9
In any case, the gap between the working age population and the labour force does not consist solely of women. About 100 million males of working age too are without any sort of work.10 A significant number to be kept in mind: The annual addition to the working age group is around 18 million, whereas the annual addition to employment is less than 4 million.
Secondly, among those who are considered 'employed' — in that they are engaged in 'gainful activity' — a large number are earning less than subsistence levels. Many of them are self-employed, either as marginal farmers or as petty vendors. However meagre the returns they get for their labour, they continue to take whatever work they can get, for lack of any alternative. They may be considered underemployed. Their number is difficult to estimate, but it is very large. (As mentioned earlier, only around eight per cent of the employed are in the organised sector.)
Such is the scale of the unemployment problem. It was already vast before the onset of the New Economic Policy; it is now growing at a runaway pace. Far from additional employment being generated as 'labour flexibility' has been increased and average wage levels have been depressed, employment growth has fallen sharply in this very period. The sector of the greatest apparent employment growth, namely, the services sector, is actually one of under-employment or disguised unemployment.
Agricultural crisis: principal reason
for declining employment
While some part of this is due to mechanisation, the main reason for the freeze in agricultural employment is the increasing concentration of land, which in turn is largely due to the current economic policies. As public sector investment in agriculture is slashed, a whole range of input costs are hiked, bank credit is slashed, domestic crops face competition from cheap imports, and price support operations are reduced or wound up, more and more peasants are losing their land. The proportion of landless households among total rural households has risen from 35 per cent to 41 per cent between 1987-88 and 1999-2000. Since it is the small farms that are able to make more intensive use of the labour of members of the household, when peasants lose their land employment too declines. Marginal farms, which are unviable and hence unable to provide much employment, have grown from 19 per cent to 22 per cent of rural households; thus landless and marginal together account for 63 per cent of rural households, up from 55 per cent in 1987-88.11
As discussed elsewhere in this issue of Aspects, this increasing concentration of land is taking place at a time when yields are stagnating and production is growing at a slower pace than population. It is not a process emerging from a dynamic class in a rapidly growing agrarian sector but from parasitic classes in a crisis-ridden, crippled one. In the absence of employment opportunities elsewhere the peasant is helpless before the landlord or moneylender or trader, and the latter use that helplessness to alienate the peasant's land.
At the same time, as state governments in the 1990s cut back rural infrastructure development and welfare programmes, the growth of rural non-agricultural employment in the 1990s has been less than half of the rate during the 1970s and the 1980s.
Industrial employment scene bleak
Moreover, the term "industrial employment" may be misleading. While the NSS tells us that 5.8 million jobs were created in the manufacturing sector between 1993-94 and 1999-2000, the organised manufacturing sector created just two lakh (200,000) jobs during the same period. Even further, the new "industrial" jobs appear to be not in factories. The data of the Annual Survey of Industries (which covers all factory units employing 10 or more workers using power and 20 or more workers not using power) shows an actual fall in factory employment from 8.7 million jobs to 8 million jobs during the same period. So it would seem that the additional jobs in "manufacturing" were created outside the factory sector, in very tiny units and home-based manufacturing. Indeed 86 per cent of what the NSS terms `manufacturing units' use no hired labour on a regular basis; 70 per cent are located in the household itself; and the overwhelming majority are involved in primitive or traditional manufacture (eg. food, tobacco, or wood items; apparel; bricks; bangles).12 The growth of this sector is not a sign of a booming industrial economy, but of households struggling to make ends meet somehow or the other.
The other source of fresh "industrial employment" was construction, rising from 11 million in 1993-94 to 15 million in 1999-2000. However, during the same period organised sector employment in construction fell from 1.2 million to 1.1 million. Unorganised sector construction labour is a particularly sweated, insecure, dangerous, migrant employment, devoid of medical facilities, disability compensation, education for children, and decent housing.
When the new economic policy was introduced with much fanfare in July 1991, we were told that foreign investment would generate vast numbers of jobs. Between 1991-92 and 2000-01, India received $17.8 billion of foreign direct investment, and a study of the corporate sector would reveal that foreign firms have greatly increased their share of the Indian market. There is no data available on the employment generated as a direct result of such investment. However, it is striking that manufacturing employment in the organised sector rose only 1.7 per cent in the decade 1991 to 2001 — compared to 28.3 per cent during the 1970s and 16.9 per cent during the 1980s. At the same time foreign firms' increasing share of the market would have led to the closure of innumerable more employment-intensive small firms, and thus suppressed overall employment.
Industrial employment is not growing partly because industry itself is growing very slowly; that in turn is because demand is stagnant. Further, as income shifts to a narrow section at the top of society, not only does a smaller share of that income get spent, but the type of good demanded changes: less wage goods (articles of daily consumption, utensils, cheap furniture, cheap textiles), and more luxury commodities (electronic items, cars, expensive textiles), which require more imported inputs and less agricultural inputs.
Let us say that for some reason poor peasants get some additional income; they would use a portion of it to buy new dhotis. The manufacture of textile for dhotis not only generates jobs in the textile industry, but requires cotton as an input, thus generating demand in agriculture. The textile industry requires textile machinery, generating demand not only in the textile machinery industry but in all the industries that supply its inputs — such as steel, which in turn requires the mining of iron ore and coal, and so on. The putting up of additional plants to meet fresh demand requires cement, steel and other construction materials. The workers employed in all these industries in turn get income to buy more textiles, as do the cotton-growing peasants, thus setting off the whole cycle all over again. Thus the original increase in demand results in several times more income. Importantly, the commodities and technology required to make dhotis are available in the country, and so little demand leaks out of the country in the above process.
Let us imagine instead that the same income instead comes into the hands of a top executive in a financial sector firm in Mumbai. He would save a larger share of it — part of it in an account in a highly automated foreign bank, part of it in shares or mutual fund units. If he is very wealthy, he would save a large portion in a bank abroad, although this is not yet legal. He would spend some small part of the remainder on food, but even within that a sizeable share would go to expensive restaurants in which scant employment is created for a large turnover. Expensive clothing, made from imported textiles, would make up a small share of the remainder. A large share of expenditures would be for automobiles, luxury electronics, interior decoration, holidays at five-star hotels in India and abroad, education for his children abroad, and so on. The automobile, luxury electronics, and five-star hotel industry in India all make large imports, and even interior decoration for the rich uses more and more iimported goods. Thus a large part of his savings and a portion of his consumption leak out of the country. A portion of his savings in the share market or bank deposits may not find its way to investment at all, for the corporate sector will not make fresh investments unless there is growing demand for industrial goods, and if corporates are not borrowing banks will not lend for production. Our executive's savings become part of the ever-larger pool of funds in the financial markets, building up larger and larger claims on the stagnant productive economy.
No doubt some employment would be generated by his additional income: for workers assembling imported luxury goods, for artisans re-decorating his house, for domestic servants, chauffeurs, and security guards, for employees at the course he golfs at, and the like. But the productive activity, income and employment generated in this course are far less than via the additional demand for dhotis. Moreover, an all-round domestic industrial base, and the all-round know-how needed for putting up and running such an industrial base, get developed indigenously in the course of catering to the first type of demand. Such a base and capability are forgone in the second, where the economic activities and capabilities that develop are limited, disarticulated, dependent.
Services sector as last resort for job-seekers
Within the services sector, the biggest share was that of "trade, hotels and restaurants", which yielded an additional 10.7 million jobs between 1993-94 and 1999-2000, and which looks set to become a larger employer than manufacturing. "Trade" includes all sorts of petty vendors, largely one-man or one-woman operations (the average number of jobs per enterprise in the unorganised services sector is less than two). They eke out a desperate existence. Where agriculture has long offered disguised unemployment and some sort of paltry subsistence to the vast pool of those who could not get jobs elsewhere, now the services sector appears to be playing the same role.
"New economy" jobs:
insignificant compared to scale of unemployment
However, while software and ITES may absorb a sizeable section of middle class job seekers and play a crucial role in lulling their frustration, the jobs involved are trivial both as a percentage of employment (0.2 per cent of total employment in 2004) and compared to the overall employment that needs to be generated. The most extravagant estimate of how many ITES jobs would shift out of the US, by Forrester Research, puts the figure at just 3.3 million by the year 2015. It is anyone's guess how many of these would come to India, since a number of other countries, including China, are busy preparing to set up similar activity. However, even assuming India gets two million of these jobs over the next 11 years, we need to place that figure against the size of the Indian labour market. If we take new entrants to the Indian labour market at nine to 10 million a year, the shifted ITES jobs would account for just two per cent of the new entrants into the Indian job market.13
Most industries in India depend largely on domestic demand, and use largely domestic inputs. However, the IT and ITES industries use a low percentage of their inputs from local industry, and cater largely to foreign demand for their services. This has two implications for employment. First, the lack of backward linkages with the rest of the economy means that the growth of the IT industry does not lead to the creation of many more jobs in other industries. The second implication is that, if foreign demand drops for any reason — for example, that other countries offer stiff competition in the same services, or that countries such as the US block the outsourcing of such work — employment can go down quite suddenly. Even the existing very small shift of ITES jobs to India has met with a political backlash in the US, the quota of visas for software professionals has been slashed in half, and laws are being passed to prevent US state government ITES work being contracted to Indian firms. Hardly a firm base on which to "project the employment potential of the sector and promote it as a career of choice".
Such is the picture of employment and unemployment in the country. The notion that full employment would be reached if only the price of labour power were to drop low enough, is false even for advanced capitalist countries, since capitalists make hiring decisions based not on whether wages are low enough, but on the prospect for making profits. But the notion of a `market-clearing' price for labour power is particularly absurd here in India, where half those in the working age group have no employment of any sort, and a large percentage of even those nominally employed are merely eking out an existence through various types of self-employment. The labour market cannot 'clear', that is, all the potential workers cannot be absorbed however low the price of labour power, because the political economy of the country is incapable of generating that level of overall demand and employment. This is so because India is subjugated to imperialism (stunted and under the hold of foreign capital). And so its vast productive potential, the labour of hundreds of millions, becomes so much superfluous matter.
2. S.P. Gupta quoted in Business Standard, 20/1/04. (back)
3. Here we have taken the Current Daily Status basis figures, as does the official Economic Survey 2002-03. (back)
4. The seemingly impressive figure of eight per cent growth in 2003-04, if achieved, would be largely thanks to the very low base of 4.3 per cent GDP growth in 2002-03. That is, since the rate of growth is measured as a percentage of the earlier period's performance, it appears to be larger when the earlier year's growth is poor. (back)
5. The employment and unemployment surveys of 1987-88, 1993-94 and 1999-2000 were large-sample surveys with enough of a gap to assess to draw some conclusions about long-term trends. Small-sample surveys were also conducted in the years after 2000. The Government has rushed to claim that these surveys reveal that job growth has rocketed upward after 2000, creating 8.4 million jobs a year. Is this credible? Not at all. The GDP growth rates in 2000-01, 2001-02, and 2002-03 were just 4.4, 5.6, and 4.3 per cent respectively, and in the first and third year GDP in agriculture fell. So the Government's claim would mean that employment elasticity of growth had jumped suddenly to more than 0.5 at a time when agriculture, the biggest employer, would have shed workforce and industry was in the doldrums. The claim is merely election propaganda, and no doubt will be revealed as such in due course when all the data become available. (back)
6. given the employment elasticity of 0.16 and the GDP growth rates in 2000-01, 2001-02, 2002-03, and 2003-04 (projected). (back)
7. assuming it grows at the rate of 2.75 per cent a year. (back)
8. The picture becomes even worse if we take into account that, according to NSSO, 10.4 million children were working in 1999-2000; that means that many fewer persons of working age were employed. (back)
9. It is worth recalling here that when China was socialist, and strenuous efforts were made to mobilise the entire potential labour force, there were periods when nearly all women of working age participated in social labour, and women accounted for 40-45 per cent of total labour-days. (back)
10. taking males to be 52 per cent of the working age population and 70 per cent of the workers. (back)
13. An official task force on human
resource development in the IT industry projects the figure of
an additional 1.5 million IT and ITES jobs by 2009. This would still be only
per cent of the additional job-seekers during the next five years.
All material © copyright 2014 by Research Unit for Political Economy